It has been suggested, that those bills of exchange and drafts were the invention of the Jews, and such may very possibly have been the case. But the just and philosophical remark of Mr Dugald Stewart, in regard to the invention of printing, may he gene rally applied to the progress of mankind in all other arts and sciences. On this subject, he 'observes, that to whomsoever the credit of this important dis covery may be due, it is evident, from the state of society at that time in Europe, and from the ra pid progress of all moral improvement, that some such process, for the speedy dissemination of know ledge, must have been discovered about this period. The general condition of the world, created, if we may so express ourselves, an effectual demand for the discovery ; and the ingenuity of mankind being turned to this object, the necessary means for grati fying the love of knowledge and inquiry, now fairly awakened, were speedily devised. In like manner, it may be remarked of bills of exchange, that the gradual progress of mankind in wealth and improve ment, favoured the growth of mercantile confidence, which was still farther strengthened by the establish ment of public banks of undoubted credit ; and that, by whomsoever bills of exchange were first used, some such invention was the necessary result of that in creased confidence and credit, which the progress of wealth and industry was rapidly diffusing over all Europe.
In general, the public banks established through out Europe were found to answer all the purposes of their institution. As their credit was beyond all question, they afforded a solid foundation for commercial confidence, and their affairs being ma naged with prudence, they increased in respectabi lity and credit, supplying the home merchant with a safe and convenient instrument of exchange, and enabling the foreign merchant to receive remittances from abroad, or to make his payments more cheaply, safely, and expeditiously than before. In addition to those already mentioned, other banks were esta blished in different parts of Europe, and upon the same model. But, in some cases, owing to a devia tion from their original rules, and to an imprudent extension of their concerns, from a desire of inordi nate gains, they were occasionally in want of specie, and being unable to pay on demand, they fell from that high degree of credit, which is essential to the usefulness and prosperity of such institutions.
By the general circulation of the bills of those, public banks, the use of specie was in a great' mea sure superseded as a medium of exchange between distant parts ; and it was obvious, that, by following out the same principle in the domestic circulation of a country, paper might, in like manner, be substi tuted for specie in its internal commerce. When a debt against persons of undoubted ability to pay is once constituted by a written document, the debt may, by means of this document, be made over to li quidate the claims of a third party, and in this way, a cumbersome species of paper currency may be em ployed in the great transactions of trade. By im proving the form of this instrument, however, by cir culating bills for small sums, and by making them payable on demand, a public bank, in good credit, will supply the community with a paper currency so convenient as to answer all the purposes of specie.
In the course of the last century, public banks for' the circulation of paper in lieu of .specie have been I established in most of the great cities of Europe. Ofj these, the most important, whether we consider its great wealth, or the vast extent of its transactions, is the Bank of England. Of the nature and origin of this establishment, an account will be found in the Encyclopedia; and, in this supplementary work, we shall proceed, briefly, to notice some of its more re cent transactions, and also to describe generally the effects produced by so powerful an engine on the circulation and commerce of the country.
The Bank of England, when it was first incorporat ed, assisted Government with a loan of L. 1,200,000, and it has subsequently been in the practice of accom modating the public, from time to time, with loans to a considerable amount. In 1746, those advances, which form its undivided capital, amounted to L.11,686.800, for which interest is paid by Government at the rate of 3 per cent. ; and its divided capital had been, at the same time, raised, by different calls and subscrip tions, to L. 10,780,000. The state of these two sums continued nearly the same till the year 1800, when the Bank, in consideration of the renewal for twenty one years of its charter, which expired in 1812, ad vanced to Government a farther sum of L.3,000,000, without interest, for six years. This sum became payable in the year 1806, at which period, it was agreed, after some discussion, that the loan should be continued to Government during the war at an in terest of 3 per cent. In the following year, in con sequence of the great profits arising from the vast and increasing amount of the public money deposit ed in the Bank, the Chancellor of the Exchequer claimed for the public some compensation, either by an annual payment of money, or by a loan without interest. In the year 1797, the deposits of cash in the Bank, whether belonging to the public or to in dividuals, amounted altogether to L.5,130,140. The Government balances alone had increased, in the year 18'07, to the enormous amount of between L.11,000,000 and L.12,000,000 ; and, in considera tion of the profit accruing to the Bank from the use of this money, its directors agreed to lend L. 3,000,000 to Government without interest, until six months af ter the conclusion of a definitive treaty of peace. This loan, together with the former loan of L.3,000,000 granted in 1806, became due in the year 1814. The loan of 1806 was discharged, but the loan with which Government was accommodated in 1808 was continued to the public till 5th April 1816. According to an arrangement made at this time, the Bank was allowed to add to its capital L. 2,910,600 ; and in return the loan of L.3,000,000 was continued at an interest of 3 per cent. An ad ditional advance was also made to Government of L. 6,000,000, at an interest of 4 per cent. The debt of the Government to the Bank has been in this man ner increased from L. 11,686,800 to L.20,686,800.